Here's What We Like About Shanxi Huaxiang Group's (SHSE:603112) Upcoming Dividend

Shanxi Huaxiang Group Co., Ltd. (SHSE:603112) is about to trade ex-dividend in the next 3 days. The ex-dividend date is one business day before the record date, which is the cut-off date for shareholders to be present on the company's books to be eligible for a dividend payment. The ex-dividend date is an important date to be aware of as any purchase of the stock made on or after this date might mean a late settlement that doesn't show on the record date. Therefore, if you purchase Shanxi Huaxiang Group's shares on or after the 23rd of December, you won't be eligible to receive the dividend, when it is paid on the 23rd of December.

The company's upcoming dividend is CN¥0.311 a share, following on from the last 12 months, when the company distributed a total of CN¥0.31 per share to shareholders. Based on the last year's worth of payments, Shanxi Huaxiang Group has a trailing yield of 2.5% on the current stock price of CN¥12.76. If you buy this business for its dividend, you should have an idea of whether Shanxi Huaxiang Group's dividend is reliable and sustainable. We need to see whether the dividend is covered by earnings and if it's growing.

See our latest analysis for Shanxi Huaxiang Group

Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. Shanxi Huaxiang Group paid out a comfortable 31% of its profit last year. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. Over the last year it paid out 67% of its free cash flow as dividends, within the usual range for most companies.

It's positive to see that Shanxi Huaxiang Group's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.

Click here to see how much of its profit Shanxi Huaxiang Group paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. That's why it's comforting to see Shanxi Huaxiang Group's earnings have been skyrocketing, up 20% per annum for the past five years.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. In the past four years, Shanxi Huaxiang Group has increased its dividend at approximately 17% a year on average. It's great to see earnings per share growing rapidly over several years, and dividends per share growing right along with it.

Final Takeaway

Has Shanxi Huaxiang Group got what it takes to maintain its dividend payments? From a dividend perspective, we're encouraged to see that earnings per share have been growing, the company is paying out less than half of its earnings, and a bit over half its free cash flow. Shanxi Huaxiang Group looks solid on this analysis overall, and we'd definitely consider investigating it more closely.

While it's tempting to invest in Shanxi Huaxiang Group for the dividends alone, you should always be mindful of the risks involved. Every company has risks, and we've spotted 1 warning sign for Shanxi Huaxiang Group you should know about.

A common investing mistake is buying the first interesting stock you see. Here you can find a full list of high-yield dividend stocks.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.